If you’re looking to freshen up your portfolio as the new year begins, a good way to do it is by adding in some dividend-paying tech stocks. They offer an unusual combination of income and growth, and better yet, they have an established pattern of outperforming the market. These three in particular appear to be top stock buys in January.
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1.Microsoft
Microsoft (MSFT -0.49%) is one of the best-performing stocks of all time, and it’s easy to see why. It has dominated the enterprise software space for more than a generation and is as diversified across multiple product lines as few other tech giants are.
Key offerings include the popular office software suite, Azure cloud infrastructure business, and Windows operating systems. The company also has strong positions in areas like Xbox gaming, social media through LinkedIn, and a wide range of other software companies like Github.
Microsoft also enjoys massive competitive advantages, as evidenced by its tremendous operating margins, which came in at 43% in the most recent reporting quarter.
The tech giant’s dividend won’t draw attention at a 1.2% yield, but the company has consistently grown its payouts over the past 15 years.
More importantly, Microsoft’s fast-growing cloud division and its diversification make it a good bet for weathering today’s macroeconomic volatility. Although the company is sensitive to changes in business spending, there’s little doubt that it would emerge from a possible recession as strong as it is now, and could easily gain market share from weaker software companies. A recession could also prompt it to make some relatively cheap acquisitions that would benefit it over the long term.
2. Taiwan semiconductor
Taiwan semiconductor (TSM -1.99%) just received Warren Buffett’s Seal of Approval Berkshire Hathaway bought more than $4 billion worth of the chipmaker’s stock in the third quarter, and TSMC passes the Buffett test with flying colors.
The company manufactures chips on behalf of technology companies such as AMD, Apple, Broadcomand others, and it has a wide economic moat with more than 50% share of the semiconductor foundry market.
Taiwan Semi is also a solid dividend payer, yielding 2.4% at the current share price. Semiconductor stocks sold off sharply in 2022 and TSMC shares fell along with the sector, but the company is more resilient to the cyclical nature of the chip sector than its peers as it is largely immune to chip price swings by not selling them to end users.
The company has also seen strong revenue growth and high profit margins recently. In the third quarter, revenue rose 29% year over year to $20.2 billion and had a 46% profit margin.
Demand for semiconductors continues to grow, and TSMC spends $40 billion on two new manufacturing facilities in Arizona, paving the way for significant expansion. The stock also looks good value right now at a price-to-earnings (P/E) ratio of 13, making now a good time to buy.
3. Broadcom
Let’s stay in the semiconductor sector, Broadcom (AVGO 0.24%) also represents a good option for investors looking for dividend-paying technology stocks. Broadcom develops chips, but it has avoided the headwinds that have hit other chipmakers by not focusing on PCs and mobile devices.
Instead, Broadcom makes chips for data centers, wireless routers, modems and other connectivity devices, as well as local area network infrastructure and fiber optics. Even in a tough environment for semiconductor stocks, Broadcom continued to grow its revenue.
In the fiscal fourth quarter ended Oct. 30, the company reported a 21% increase in revenue to $8.93 billion and its adjusted earnings per share rose to $10.45 from $7.81. Dollar. Management expects solid growth to continue into 2023 as it reported revenue growth of 16% for the first quarter of its fiscal 2023. This forecast shows that the company is not suffering from the macroeconomic headwinds as much as many of its peers.
The stock also has an enviable track record. It’s up 1,700% over the past decade, and at the current share price, the dividend yield is 3.4%. Management was quick to increase the dividend as well, just increasing its payout again by 12%.
If you’re looking for a tech stock that offers a combination of growth, income, and recession resilience, it’s hard to find a better option than Broadcom.
Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.